Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. I
Speaker 1: want to bring in Michael Shell now market Field Asset
Speaker 1: Management Shairman portfolio manager and CEO, which joins us here
Speaker 1: in New York. Good morning to Michael. Good morning. Let's
Speaker 1: get to the IBM deal. Ten times sales for red
Speaker 1: half thirty three billion dollars. What does red Hat do
Speaker 1: and why does IBM need them? Is this all about
Speaker 1: the cloud? I think it's all about IBM trying to
Speaker 1: catch up with a technology cycle that's you know, left
Speaker 1: it trailing in the dust. Sounds a little late to me, Michael,
Speaker 1: I think it's it's extremely late, and and you know,
Speaker 1: somewhat despert. I'm not enough of an expert to tell
Speaker 1: you whether it's a quote unquote good deal or not,
Speaker 1: or what exactly that happenings to the table. But you know,
Speaker 1: when I look at IBM, I look at a company
Speaker 1: that used to be Triple A and is now single
Speaker 1: a um and And nineteen years ago was one of
Speaker 1: the absolute dominant corporate American companies. In fact, for what
Speaker 1: I remember, it even managed the first eighteen months of
Speaker 1: the bear market, and we're still near it's high um
Speaker 1: and And since Venners has you know, in absolute terms,
Speaker 1: maybe not absolutely disastrous, but but in relative terms kind
Speaker 1: of looks like Wegg did a year ago. What happens
Speaker 1: if they slipped to some form of triple B or
Speaker 1: flavor of triple B. I mean, this is an iconic
Speaker 1: company of the phrase bet. The company has been seen
Speaker 1: three and four times at PC tobaccle the death of
Speaker 1: the near death, I should say, of But as you
Speaker 1: correctly state, Michael, they've got an a rating of a
Speaker 1: triple A perception and one day they're going to be
Speaker 1: B or whatever. What happens when a company does that
Speaker 1: shifts from ash to be ish. You know, I think
Speaker 1: it's okay to debase your balance sheet if you are
Speaker 1: enriching your shareholders. It may not be the way I
Speaker 1: would want to run a company, but I think you
Speaker 1: can make an argument, but that's in your in your
Speaker 1: shareholders interest in your bond holders, you know, provided you
Speaker 1: keep up at that sort of triple B plus level
Speaker 1: haven't really been damaged, haven't really been damaged too greatly.
Speaker 1: But you know, if we went into a technology downtread
Speaker 1: um and IBM is teaching between as you say, that
Speaker 1: A level and that triple B level and spreads a widening.
Speaker 1: You know, those sorts of bombs don't get treated well
Speaker 1: by markets. What did Mr mL get wrong? If you
Speaker 1: were having a cup of coffee with Mrs Romedy and
Speaker 1: Bloomberg will speak to Mrs Romedy here in a bid
Speaker 1: uh if if what would you say to Ms Romedi
Speaker 1: about lessons learned from Mr Immelt? You know, it's it's
Speaker 1: I think both of them took over companies that exactly
Speaker 1: there a long time. I mean, I mean they were
Speaker 1: and did very very difficult situations by the time management look.
Speaker 1: I think m L in retrospect panicked after the OA
Speaker 1: financial crisis and got part of a crucial party, got
Speaker 1: bit of a crucial part of g which was the
Speaker 1: financial business, and the company has never really been able
Speaker 1: to rebuild itself since. You know, in the case of IBM, yes,
Speaker 1: as I say, it's it's been a wonderful technology cycle,
Speaker 1: and you have to ask questions of somebody that came
Speaker 1: into the cycle and in an okay position like IBM
Speaker 1: and hasn't managed to innovate, hasn't managed to take advantage
Speaker 1: of any of the major trends that you've seen take place. John,
Speaker 1: I get a chart out. I put a Michael shul
Speaker 1: chart on the Chinese stock market. That was just the
Speaker 1: usual show brilliance. But I went back and looked at
Speaker 1: IBM history, which I lived. But I'd forgotten the boom
Speaker 1: of the early eighties with the IBM PC and then
Speaker 1: John the absolute crater. I'd forgotten the trouble IBM was
Speaker 1: in twenty five years ago, even the last ten years.
Speaker 1: They think about Microsoft, think about the transition that Microsoft
Speaker 1: has managed to make of Santa and Adela. Now that's
Speaker 1: the way it should have been done at IBM, you
Speaker 1: would assume, Michael, Yes, But I you know, Microsoft had
Speaker 1: one key advantage, which was they were earning tremendous amounts
Speaker 1: of cash for whole way through it and never really
Speaker 1: had to touch their balance sheet. That the trouble with Microsoft,
Speaker 1: as they had a fantastic legacy business and they didn't
Speaker 1: really noticed, they really didn't understand what to do with it.
Speaker 1: You know, IBM unfortunately seems to have a deteriorating legacy
Speaker 1: business and doesn't quite know what to do about it. Well,
Speaker 1: IBM stocks down about five. I love the way many
Speaker 1: people will refer to this, Michael as a cash deal,
Speaker 1: and it's a cash deal for Red Hat. For IBM,
Speaker 1: it's something else. It's a debt deal, right correct, It
Speaker 1: will be financed by debt. That's the situation for the
Speaker 1: big tech companies. Looking at the situation right now for
Speaker 1: the broader market is interesting that we're about together the
Speaker 1: world's second largest tech deal. Michael seemingly at a time
Speaker 1: where the markets falling gat a bed and increasingly the
Speaker 1: doom and Gloom crew were coming on a program like
Speaker 1: this talking about the prospect of a downturn. What's the
Speaker 1: signal that comes from a deal like this this morning?
Speaker 1: You know, you don't want to like take every deal
Speaker 1: and say this definitely means something. I think it means
Speaker 1: a lot for IBM for the overall technology market. It's
Speaker 1: perhaps interesting, but Red Hat was willing to sell. You know,
Speaker 1: maybe they felt that their own business was coming under pressure.
Speaker 1: But I think technology has got to the point that
Speaker 1: it's becoming increasingly competitive, increasingly oligopalistic um, and for the
Speaker 1: first time, I think we have questions whether over the
Speaker 1: medium to longer term, the large technology companies can keep
Speaker 1: up with expectations. Are all ego bullies? How does IBM
Speaker 1: adjust to that? And we get to the cow and
Speaker 1: Jeffrey's headlines today in the Bloombird, where one of them,
Speaker 1: I believe Cowen says we could see other bids even
Speaker 1: at thirty one time, Zibadar or whatever, and Jeffreys saying,
Speaker 1: no way. I mean there's a desperation out there in
Speaker 1: cloud technology, isn't there. Well, I think it's viewed as
Speaker 1: as the best way to make money from the corporate sector,
Speaker 1: you know, going forward. And I think if the IBM
Speaker 1: three six, do you have two thousand twenty two right? Yes?
Speaker 1: You know whatever? That was his face I wish we
Speaker 1: had wish Did you see that on radio? We need
Speaker 1: you like brilliant Michael's face, Michael bar Did you see that?
Speaker 1: She'll just killed me that? Yes? To last, you have
Speaker 1: no idea John, how the pecking order at any firm
Speaker 1: was whether you had an IBM typewriter. They were just
Speaker 1: the coolest thing. Going back in the day. They were
Speaker 1: the coolest thing. What going I couldn't type was this.
Speaker 1: This is so far back I don't remember what decade,
Speaker 1: But the point is it didn't even matter if you
Speaker 1: could type. It was just cool. You still don't do
Speaker 1: on your own typing even now. No, I don't do
Speaker 1: my own type. Tom Kane, Happy, Tom Kine, Michael Shell,
Speaker 1: Thank you, Michael, give me so much time to place
Speaker 1: on TV and radio. Market Field Asset Management's chairman, portfolio
Speaker 1: manager and CEO. We are honored to bring in Shannon
Speaker 1: O'Neill of the Counsul and foreign relations or expertise in
Speaker 1: Mexico and Argentine of course on all of Latin America
Speaker 1: and Brazil. Dr Nil, wonderful to have you whe us
Speaker 1: you speak of Mexico and America indivisible in your book?
Speaker 1: Are Brazil and the United States? Is this new president
Speaker 1: and President Trump? Are they indivisible? Well? I do think
Speaker 1: that the new president elect would like to make them indivisible.
Speaker 1: He's a big fan of President Trump and has talked
Speaker 1: a lot about him and how he would follow him,
Speaker 1: and also really touted the phone call he got from
Speaker 1: President Trump last night in the congratulations within this, Shannon O'Neill,
Speaker 1: is the comparison is to Mr deterity of the Philippines. Obviously, law, criminality,
Speaker 1: corruption or front and center. In Brazil. Will there be
Speaker 1: a crackdown to threaten civil liberties? This is what everyone
Speaker 1: is expecting and what he has said over and over
Speaker 1: during each campaign. Stop. Brazil is already a place where
Speaker 1: the police kill somewhere around five thousand individuals every year,
Speaker 1: and so expect those numbers to go up, just as
Speaker 1: they did in the Philippines. The commitment to liberalize and
Speaker 1: privatize is something the markets have really focused on over
Speaker 1: the last few months or so. Shannon, just how strong
Speaker 1: is that commitment? How fluid is that commitment? Well, this
Speaker 1: is a big question because the president elect Bosnao has
Speaker 1: never been a big privatizer, he's voted against it during
Speaker 1: his almost thirty years within the Congress. But his economic
Speaker 1: advisor is a very strong privatizer, very orthodox Econ missed,
Speaker 1: and he's hinted that he will give him free reign.
Speaker 1: So which Billsonaro, which government shows up will be a
Speaker 1: big question. And Shannon, this is the issue. The narrative
Speaker 1: around Bolsonaro, This economic narrative is recent, it's vague and
Speaker 1: it hinges on this one individual. Talk to me a
Speaker 1: little bit more about this one individual that is going
Speaker 1: to be shaping economic policy in Brazil, that ultimately is
Speaker 1: the economic policy that the market has gone behind. Well,
Speaker 1: he's a very strong personality, very set in these beliefs,
Speaker 1: very orthodox economists along the University of Chicago lines. So
Speaker 1: in that sense, he's very pro market. The question is,
Speaker 1: as you say, he's new to the Billsonaro team, and
Speaker 1: so will he really have his trust, will he have
Speaker 1: the power to go forward? And one thing that was
Speaker 1: said in the last couple of days is that he
Speaker 1: will report to Bilsonaro's chief of staff, so suggesting he
Speaker 1: might not have that direct line to the new president. Shannon,
Speaker 1: within your expertise of Latin America, how discreet is Brazil
Speaker 1: or are there more linkage? Is than we understand with
Speaker 1: the adjacent nations and even with Mexico. Brazil is the
Speaker 1: biggest economy in in the hemisphere outside of the United States.
Speaker 1: It has a lot of trade with the microsar partners, Argentina, Uruguay, Paraguay.
Speaker 1: It has the possibility of being a regional and a
Speaker 1: bigger global leader We've seen that at various moments along
Speaker 1: the way, um, and it is important for what's going
Speaker 1: on in Venezuela also its neighbor, and we'll see whether
Speaker 1: the new president takes a leadership role on the crisis
Speaker 1: that's happening there. What's the linkage of the military or well,
Speaker 1: let me rephrase this in my ignorance, what is the
Speaker 1: linkage of the military slash police with this new president. Well,
Speaker 1: he was an army captain many many years ago, but
Speaker 1: he's a huge official and not a huge fan of
Speaker 1: the military. He likes to talk in that language. He
Speaker 1: likes to talk about giving the police a free reign.
Speaker 1: So expect a much more milit terries state in many ways.
Speaker 1: We also saw several ex military office brought in as
Speaker 1: governors or as members of Congress, So you're gonna see
Speaker 1: more of this rhetoric within the new political class. Shannon,
Speaker 1: Thank you so much. Shannon on the old console on
Speaker 1: foreign relations, can't say enough about two nations indivisible. It
Speaker 1: has aged well out four or five years ago. Two
Speaker 1: nations indivisible Mexico, the United States, and the road ahead
Speaker 1: is wrong. Let us pause with Neil sharing of Catholic anomics,
Speaker 1: you can do that. He's he's really really quite good,
Speaker 1: spanning from e M to developed countries as well. Neil,
Speaker 1: if you were to write a report today, what would
Speaker 1: you focus on in the capital economics mix? Well, that's
Speaker 1: the question. There's just so many things going on. I
Speaker 1: don't want to predetermine it. What which right There's There's
Speaker 1: obviously lots of strands that we that we we do
Speaker 1: tend to focus on. There's the trade war. To what
Speaker 1: extent is that going to escalate? To what extent that's
Speaker 1: is that going to kill the global economy. There's the
Speaker 1: risk of the political fragmentation, rise of populism, economic nationalism
Speaker 1: and parts of the world, including with the news of
Speaker 1: Bosonara's victory in Brazil over the weekend. And the big
Speaker 1: question to my mind though, is to what extent how
Speaker 1: much longevity is there in the US recovery. To what
Speaker 1: extent does the cumulative effects of previous FED rate rate hikes,
Speaker 1: FED tightening, Well, when does that start to bite? When
Speaker 1: does the fiscal sugar high from the tax cuts earlier
Speaker 1: this year start to fade? And that's the big puzzle,
Speaker 1: because that's the it's the US that stands out at
Speaker 1: the moment every most other parts of the globe economy
Speaker 1: is slowing US. The dollar dynamics is the guess of dollardics. Yeah,
Speaker 1: which people have got wrong for two years wrong, two
Speaker 1: years running. Now Tom looking for a stronger and they
Speaker 1: get a weaker. They look for a weaker and they
Speaker 1: get a stronger. That's been the story of Neil. Really
Speaker 1: fascinating interview with Jeff Gunlag very recently on on Citywire.
Speaker 1: It was really really interesting and he talked about what
Speaker 1: he looks for in the economic data and either the
Speaker 1: data changes or people's interpretation of that data changes. Has
Speaker 1: the data changed or if people just started to interpret
Speaker 1: the data differently another good question. I think that there
Speaker 1: is genuinely a sense I think in the last six
Speaker 1: months that the economic data outside of the US have
Speaker 1: started to soften. We see that not just in the
Speaker 1: soft data, the survey data, the p m s and
Speaker 1: so on and so forth. We see in the hard
Speaker 1: days of some trade data slowing, industrial productions weaker. Pretty
Speaker 1: much across the board. Japan's economy looks like it looks
Speaker 1: like it contracted in Q three, and China's economy is
Speaker 1: losing momentum. Too, So I think there is something tangible
Speaker 1: in the in the data. The puzzle that you as
Speaker 1: you alluded to earlier is that we've not yet seen
Speaker 1: signs of wage pressure picking up in the countries where
Speaker 1: the labor market is a titan. Growth is still strong,
Speaker 1: particularly the US and in the U k UM And
Speaker 1: that's that. I think that's the that's the that's the
Speaker 1: missing piece of the jig saw so far. No, very quickly,
Speaker 1: you're you were with us earlier we talked about China
Speaker 1: slowing down. What is China growth right now? In capital
Speaker 1: economics and conder, I say, we get a print below
Speaker 1: six point zero percent, we you can. We have our
Speaker 1: own in highse measure China activity proxy that's kind of
Speaker 1: running at the moment about five and a half five's
Speaker 1: something like that. It got to as low as just
Speaker 1: below four at the end of twenty fifteen, started sixteen,
Speaker 1: which if you remember, that's when he had the botched
Speaker 1: evaluation and big slow down in China's economy, subsequent recovery
Speaker 1: field by policy stimulus that's now fading ah and growth
Speaker 1: of stowing. Accordingly, just quickly, what are you looking for
Speaker 1: on Friday? We've got five think the consensus is one
Speaker 1: three something around that. The key will be what happens
Speaker 1: with the way number? Is there a further sleervation in
Speaker 1: wage growth? How does the fetch reacts? How does it
Speaker 1: went bound? Stop against the tamil that we see actually
Speaker 1: office stops the pause bubbles now sharing, thank you so
Speaker 1: much as well with a new slow this morning. We
Speaker 1: uh we did early early this morning the shocking headlines
Speaker 1: coming out of Germany of Chancellor Miracle stepping down from
Speaker 1: party leadership of her dominant c DU. This after a
Speaker 1: troubled election in Bavaria a few weeks ago in Hessan
Speaker 1: which is vis Boden and Frankfurt over the weekend, and
Speaker 1: then really the major headline coming out of a end
Speaker 1: or political career looking out two and three years. Nina
Speaker 1: Schick is with Rasmussen. This is the Rasmusen of Denmark
Speaker 1: in London. Uh, and we greatly appreciate her attendance uh
Speaker 1: this morning. Nina. Is it an analysis out two and
Speaker 1: three years of after the party's c DU, after the
Speaker 1: party's CPD, or can these two dominant parties find a
Speaker 1: new path in domestic Germany. I think they don't have
Speaker 1: a choice. They have to find a new pass. And
Speaker 1: the thing is that Angela Merkel has been such a
Speaker 1: monolith not only in terms of domestic politics in Germany,
Speaker 1: but also in terms of EU politics and also global politics,
Speaker 1: that filling that space, that void that she's going to
Speaker 1: live behind, is going to inevitably going to cause a
Speaker 1: little soul searching and blood letting in her parties. And
Speaker 1: although I think she's setting setting the stage for her departure,
Speaker 1: which by the way, I would argue was always going
Speaker 1: to be the case, given her performance in the national
Speaker 1: election in seventeen and the subsequent regional elections where we've
Speaker 1: seen her parties her both her party and the other
Speaker 1: traditional kind of center left Mains Treen Party being hammered.
Speaker 1: I would argue that this is inevitable. And the bigger
Speaker 1: trend of what we're seeing in Germany is something that
Speaker 1: we see across the liberal western democratic world, where the
Speaker 1: center cannot hold anymore and politics is becoming more and
Speaker 1: more polarized, noisy, and increasingly fractured. That's something we see
Speaker 1: in Germany with the rise of the far right a
Speaker 1: f T but also with the Greens, both of whom
Speaker 1: present you know, a diametrically opposing vision of Germany and
Speaker 1: what Germany's place in the world should be. Wondering, you know,
Speaker 1: if there are any sort of likely candidates to fulfill
Speaker 1: Uncle and Merkel's role as head of the party, for example,
Speaker 1: the health minister Yen's spawn. Well, so the first thing
Speaker 1: I should mention is that Michael has said that she's
Speaker 1: going to step down from the party's leadership, but she's
Speaker 1: still technically saying that she's going to serve out the
Speaker 1: full tenure as chancellor leading into one. But again I
Speaker 1: think what she's doing stayed, you know, setting the scene
Speaker 1: for an early exit, so big question mark about whether
Speaker 1: or not you will actually stay until twenty one. But
Speaker 1: she's not leaning leaving imminently. As to her successor, well
Speaker 1: that's where it gets a bit complicated because Angela Mackel
Speaker 1: herself was you know, a proponent or even a student
Speaker 1: of helmwou Cool, you know, the former chancellor, and under
Speaker 1: that school of thought, she looked very good at eradicating
Speaker 1: any potential successor when they started getting a bit too powerful,
Speaker 1: a bit too close for her. So there aren't very
Speaker 1: many obvious candidates. Well, of the few people that are
Speaker 1: being touted, like Jen Spahn or Anne mcgrad kavan Bower,
Speaker 1: who is known as almost a mini Mercle. I think
Speaker 1: that it is a poison chalice because she has been
Speaker 1: such a bemus in German and global politics that being
Speaker 1: her successor, and make no mistake, she's still going to
Speaker 1: have a say on who her successor is. Being her
Speaker 1: successor might be too toxic long term politically, because they'll
Speaker 1: be so tight to Angela Mackael. And you know, the
Speaker 1: older generation of the city who be it Machael or
Speaker 1: Wolcom Scheibler, that their own political career might not last
Speaker 1: too long. So you have a younger generation of politicians
Speaker 1: who are coming up, including for example, who don't necessarily
Speaker 1: immediately want to step into her shoes right now because
Speaker 1: they want to make sure that they are able to
Speaker 1: define themselves with something quite different from Machaels. So it
Speaker 1: will take a few years. I think. As part of
Speaker 1: your work at Rasmussen Global, you've looked at a variety
Speaker 1: of campaigns. You also did some work on the UK's
Speaker 1: EU referendum. Do you believe that there will be a
Speaker 1: new government in the UK. Well, British politics is very
Speaker 1: precarious right now, and I think that you know. On
Speaker 1: a separate note, I think that we are seeing a
Speaker 1: lot of kind of disciplines or should we say company
Speaker 1: located politics around the world, which I think has is
Speaker 1: something much larger to do with the state of democracy
Speaker 1: in the world order, which was built in the ashes
Speaker 1: of the Second World War, and how that's all being offended,
Speaker 1: not least because of what's happening in the United States.
Speaker 1: With regards to the UK in particular, the biggest challenge
Speaker 1: that the government and the Prime Minister Trees that may
Speaker 1: have on their hands right now is to get the
Speaker 1: Brexit deal through Parliament. They've already kind of agreed the
Speaker 1: deal on the EU level, and what we've been in
Speaker 1: the past two years is that the UK has come
Speaker 1: around this easy position of thinking. But if they don't
Speaker 1: get that through the government may okay. But in Germany
Speaker 1: and in England it pends. Good question, and you're wonderful
Speaker 1: answer and informed answer is the reality at the ballot
Speaker 1: box people are voting. When does this populism trend end,
Speaker 1: whether it's Poland or Germany, or England or frankly Kentucky
Speaker 1: in eight days, when does populism end? I don't I
Speaker 1: don't see a rash all outcome for the elites other
Speaker 1: than it keeps going. I tend to agree with your analysis.
Speaker 1: Third home, I think that this is very much the
Speaker 1: trajectory of politics that we're going to be seeing in
Speaker 1: the years to come, a highly emotive, partisan and destructive
Speaker 1: and angry politics, in part because I think that democracy
Speaker 1: quote unquote has failed for a lot of people. And
Speaker 1: this kind of anger that you see not only in
Speaker 1: the United States but also across Europe means that the
Speaker 1: narrative that we've told ourselves in particular with the United
Speaker 1: States as well, that open markets, liberal democracy, and capitalism
Speaker 1: go hand in pans, and that this is some kind
Speaker 1: of linear progress to which all of the rest of
Speaker 1: the countries in the world are going to aspire to.
Speaker 1: That very narrative is being challenged. And what we find
Speaker 1: is that liberal democracy is no longer the UH is
Speaker 1: no longer the aspirational model for everyone in the world,
Speaker 1: but it's actual She's becoming an exception, and there is
Speaker 1: valid criticism to be made, you know, there's valid criticism
Speaker 1: of the liberal elites um and I tend to agree
Speaker 1: with you that this is something we're going to speak
Speaker 1: playing out heavily in the next few years. Nina and
Speaker 1: Short Notice, thank you as so much. Share with rast
Speaker 1: Miss of Denmark in England helping out this morning on
Speaker 1: European News. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.